20% annual returns over 40 years...interested?

[Kbg]

EOY 2015

1) 1xPP: -3.18%/-7.63%DD (25% SHY)

2) 66.67% SHY and 11.11% 3x ETF equivalents: -6.17%/-11.12%

3) 3xPP: -14.37%/-23.26%DD (25% SHY)

4) 3x w/ XIV Twist: -11.63%/-23.01%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

Commentary: Well 2015 wasn't very fun was it!

[dragoncar]

I'm thinking:

16.6-% 3x gld = 50% exposure
16.6-% 3x spy = 50% exposure
16.6-% 3x tlt = 50% exposure
50% shy = 50% exposure

total exposure = 200% PP.  At least that's what I'm doing in my small VP.

Subtract 5% from cash, add it to XIV and that is my VP and what I report on. Also considering switching to a momentum based version.

I guess I'm a little confused by your terminology, then:

3) 3xPP: -14.37%/-23.26%DD (25% SHY)

Implies 25% cash, rather than 50% cash as I outline above.  But perhaps you mean 25% cash exposure?

4) 3x w/ XIV Twist: -11.63%/-23.01%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

Again, seems to imply 20% cash, rather than 45% cash.  Perhaps you mean SHY represents 20% of total exposure?

[Kbg]

I'm thinking:

16.6-% 3x gld = 50% exposure
16.6-% 3x spy = 50% exposure
16.6-% 3x tlt = 50% exposure
50% shy = 50% exposure

total exposure = 200% PP.  At least that's what I'm doing in my small VP.

Subtract 5% from cash, add it to XIV and that is my VP and what I report on. Also considering switching to a momentum based version.

I guess I'm a little confused by your terminology, then:

3) 3xPP: -14.37%/-23.26%DD (25% SHY)

Implies 25% cash, rather than 50% cash as I outline above.  But perhaps you mean 25% cash exposure?

4) 3x w/ XIV Twist: -11.63%/-23.01%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

Again, seems to imply 20% cash, rather than 45% cash.  Perhaps you mean SHY represents 20% of total exposure?

Yes, 25% and 20% cash (SHY) only in the portfolios and 4 or 5 ETFs respectively...and indeed insanely risky/stupid.

I'm happy to report on other variations...like a 50% SHY and 16.66% to the other three.

Requests anyone?

I'm thinking change the format to a percent leverage (300, 200, 150, unleveraged but using 3x ETFs to increase cash)

[dragoncar]

Yes, 25% and 20% cash (SHY) only in the portfolios and 4 or 5 ETFs respectively...and indeed insanely risky/stupid.

I'm happy to report on other variations...like a 50% SHY and 16.66% to the other three.

Requests anyone?

I'm thinking change the format to a percent leverage (300, 200, 150, unleveraged but using 3x ETFs to increase cash)

OK, I don't know if you need to report on a 3x 16/16/16 + 50shy, as I mentioned that's what I do in my small VP.  Most interested in watching the decay as that really sucks in flat/down years.

So it seems option 3 is a synthetic 2.5x PP?

[Kbg]

DC,

I think I will report on 3x, 1.5x, 1x with 3xETFs and the standard version. Cash/SHY will decrease with leverage used. In other words, 3x will be 25% SHY, and 25% for leveraged ETFs, 1.5 will be 50% SHY and 16.67 for SPXL/TMF and 16.66 for UGLD and 1.0 will be 66.67 SHY and 11.11 SPXL/TMF/UGLD. To go above 1.5 I think in effect gets to be not much different than a full 3x version. A 2x version leaves cash at only 33%. At the end of the day, I think anything above 1.5x is totally insane and I mainly report on the 3x version for kicks and grins. I think the 1.5x and 1x with 3xETFs are the only conceivable rational uses of this method...and even that is debatable with decay. For me the purpose of this reporting it to watch and observe decay vs. trend compounding and its impact on the portfolio.

I hear ya on the decay...totally sucks, but not unexpected. Odds are also good that there isn't going to be much of SPXL left after this year as well.

[dragoncar]

DC,

I think I will report on 3x, 1.5x, 1x with 3xETFs and the standard version. Cash/SHY will decrease with leverage used. In other words, 3x will be 25% SHY, and 25% for leveraged ETFs, 1.5 will be 50% SHY and 16.67 for SPXL/TMF and 16.66 for UGLD and 1.0 will be 66.67 SHY and 11.11 SPXL/TMF/UGLD. To go above 1.5 I think in effect gets to be not much different than a full 3x version. A 2x version leaves cash at only 33%. At the end of the day, I think anything above 1.5x is totally insane and I mainly report on the 3x version for kicks and grins. I think the 1.5x and 1x with 3xETFs are the only conceivable rational uses of this method...and even that is debatable with decay. For me the purpose of this reporting it to watch and observe decay vs. trend compounding and its impact on the portfolio.

I hear ya on the decay...totally sucks, but not unexpected. Odds are also good that there isn't going to be much of SPXL left after this year as well.

Confused again as you say 50/16/16/16 is 1.5x but seems like 2x to me as outlined above.  Is this because 3x eTf is really only 2.5x?

[Kbg]

I am perhaps guilty of not being clear.  OK...thanks for being persistent on the math. It got me to bust out Excel and check all of my math. I can't format tables for jack but I bolded the key take aways. For the bottom two sets of columns shift everything to the right and it will line up on the above. It just really depends on how you want to account for the cash component. The alternative approach would be to figure the leverage based on the non cash components.




100000.00 Portfolio Amount

1x Cash Values
SHY 25000.00 50000.00 67000.00 75000.00
GLD 25000.00 16666.67 11000.00 8333.33
SPY 25000.00 16666.67 11000.00 8333.33
TLT 25000.00 16666.67 11000.00 8333.33
    100000.00 100000.00 100000.00 100000.00

2x                  2x             2x
50000.00 67000.00 75000.00
33333.33 22000.00 16666.67
33333.33 22000.00 16666.67
33333.33 22000.00 16666.67
150000.00133000.00 125000.00
1.50         1.33         1.25

3x                  3x             3x
50000.00 67000.00 75000.00
50000.00 33000.00 25000.00
50000.00 33000.00 25000.00
50000.00 33000.00 25000.00
200000.00 166000.00 150000.00
2.00         1.66         1.50

[Kbg]

And here is the version for leveraging the three components a certain amount with the associated cash component. The first column is potential leverage amounts and adjusting them to a percentage value in the next column. Columns 3 and 4 are how to achieve the leverage with 2 or 3x ETFs and the last two are the associated cash balances





25% Port

Lev   Lev%  2x       3x     Cash2x Cash3x
1.25 31.25 15.63 10.42 53.13 68.75
1.33 33.25 16.63 11.08 50.13 66.75
1.5   37.50 18.75  12.50 43.75 62.5
1.67 41.75 20.88 13.92 37.38 58.25
1.75 43.75 21.88 14.58 34.38 56.25
2.00 50.00 25.00  16.67 25.00  50.00

[dragoncar]

Thanks... new question.

As mentioned, I'm doing the 200% version in my small roth IRA -- 16.6~/16.6~/16.6~/50(cash). 

Now say I want to hold this cash outside my IRA for reasons.  Lets say by selling one PP asset (SPY) in taxable and buying it in IRA.

The question: how much cash should I leave in the IRA in order to allow re-balancing to occur in a down market?

For example, I just used up around 10% of my cash to bring the 3x funds back up to 16.6% after this down year.

Obviously, in a hypothetical real bad year, you can indefinitely rebalance into the 3x funds and lose everything, but is perhaps 25% cash enough to handle most situations?  I'll probably run some simulations myself, but if anyone has ideas/insights, I'm all ears.

edit:

OK, here's some back of the napkin math.  If all the base assets draw down 24.2%, the 3x drawdown can be considered 72.8%.  That is also close to a rebalancing band for a 1x PP (assuming all three volatile assets tank together).  In this case, you need 18% of your cash to restore balance. 

18% is also close to the original 16.6% 3x values, so rough estimate: in a one-time re-balance after possibly the worst historical PP drawdown, you could get away with having cash equal to your investment in the 3x funds.  Of course, then you are out of cash.

Perhaps this is the reason KGB is reporting on 25% 3x funds + 25% cash?  Or just a happy coincidence?

Either way, I may take this approach -- reasons?  I want to tax-loss harvest a portion of my GTU in taxable and move it to SGOL in IRA.  I can always use taxable cash to rebalance into the 3x funds if necessary.

[Kbg]

That is a tough question with a lot of possible scenarios. Probably the biggest one is are you going to continue contributing annually? If so, keep the cash external and make your annual contribution at rebalance time. I'm assuming small here as you mentioned. Obviously that is not going to work after a certain point in size.

The nightmare scenarios for this method are everything is down and chop/go nowhere...which pretty much describes 2015. I think you also have to plan for more than one year's DD. Personally I believe you need the full 50%.

I'd look at the historical record, find the nightmare years and go from there to run the sims to get an idea. I've always assumed at least 1 of the assets could go to near zero in a year...I've also assumed some counter balancing by another asset(s). If you get two tanking hard it could indeed be very painful indeed unless the third pulls a 30%+ year.

[dragoncar]

Yeah, I guess it's increasing the risk that my IRA tanks, but I would still have the cash outside the IRA... so I could still rebalance "across accounts" (I'm not spending the cash).  Seems like the risk is lower, just concentrates it in my IRA.

I was just reading this "study" that shows historically 2x leverage has been best for the S&P500.  Wonder if it's true for the other assets (I guess we could see if they have similar daily volatility/returns).  Making me reconsider the 3x etfs.

http://ddnum.com/articles/leveragedETFs.php

[Kbg]

Yeah, I guess it's increasing the risk that my IRA tanks, but I would still have the cash outside the IRA... so I could still rebalance "across accounts" (I'm not spending the cash).  Seems like the risk is lower, just concentrates it in my IRA.

I was just reading this "study" that shows historically 2x leverage has been best for the S&P500.  Wonder if it's true for the other assets (I guess we could see if they have similar daily volatility/returns).  Making me reconsider the 3x etfs.

http://ddnum.com/articles/leveragedETFs.php

Very good article...as noted in the article the sweet spot tends to be around 2.0 historically. What would have been nice is if they would have done an annual rebalance vs. no rebalance comparison.

When using periodic rebalancing of non or weakly correlated assets more volatility is better.

[Kbg]

I'll post this year's first update later today but thus far it has showed why it doesn't help much to try and game things. At rebalance time I held my nose and bought UGLD which dramatically lowered my average cost. Thus far, UGLD is doing quite well. I really have no idea but my guess is that as more countries implement negative interest rates gold is looking a little better as an asset.

Anyone know what commercial storage costs are for gold? I'm interested in how they relate to negative interest rates.

[dragoncar]

I'll post this year's first update later today but thus far it has showed why it doesn't help much to try and game things. At rebalance time I held my nose and bought UGLD which dramatically lowered my average cost. Thus far, UGLD is doing quite well. I really have no idea but my guess is that as more countries implement negative interest rates gold is looking a little better as an asset.

Anyone know what commercial storage costs are for gold? I'm interested in how they relate to negative interest rates.

I would say to look at Gtu for commercial storage costs.  Sure they have overhead on top of storage but maybe their shareholder docs had a breakdown or budget.  Or phys

[MediumTex]

I'll post this year's first update later today but thus far it has showed why it doesn't help much to try and game things. At rebalance time I held my nose and bought UGLD which dramatically lowered my average cost. Thus far, UGLD is doing quite well. I really have no idea but my guess is that as more countries implement negative interest rates gold is looking a little better as an asset.

Anyone know what commercial storage costs are for gold? I'm interested in how they relate to negative interest rates.

I would say to look at Gtu for commercial storage costs.  Sure they have overhead on top of storage but maybe their shareholder docs had a breakdown or budget.  Or phys

I think that on January 15th PHYS ate GTU.

[dragoncar]

I'll post this year's first update later today but thus far it has showed why it doesn't help much to try and game things. At rebalance time I held my nose and bought UGLD which dramatically lowered my average cost. Thus far, UGLD is doing quite well. I really have no idea but my guess is that as more countries implement negative interest rates gold is looking a little better as an asset.

Anyone know what commercial storage costs are for gold? I'm interested in how they relate to negative interest rates.

I would say to look at Gtu for commercial storage costs.  Sure they have overhead on top of storage but maybe their shareholder docs had a breakdown or budget.  Or phys

I think that on January 15th PHYS ate GTU.

Yeah, but they don't just shred all documents on that date

[MediumTex]

I would say to look at Gtu for commercial storage costs.  Sure they have overhead on top of storage but maybe their shareholder docs had a breakdown or budget.  Or phys

I think that on January 15th PHYS ate GTU.

Yeah, but they don't just shred all documents on that date

I just meant that GTU is no longer an option.

[dragoncar]

I think that on January 15th PHYS ate GTU.

Yeah, but they don't just shred all documents on that date

I just meant that GTU is no longer an option.

Fair enough. Anyways, it looks like they spent around $1 million in 2014 for "safekeeping fees and bank charges" on $750 million / 698,496 fine ounces of gold bullion

[MediumTex]

Yeah, but they don't just shred all documents on that date

I just meant that GTU is no longer an option.

Fair enough. Anyways, it looks like they spent around $1 million in 2014 for "safekeeping fees and bank charges" on $750 million / 698,496 fine ounces of gold bullion

What were the PHYS expenses? 

My GTU shares got gobbled up and I haven't decided whether to stay with PHYS.

[rickb]

What were the PHYS expenses? 

Per http://sprottphysicalbullion.com/media/ ... 3-2015.pdf, PHYS's bullion storage fees were about $570,000 for 9 months for $1.33B worth of gold, i.e. about $760,000/yr (about 0.057%).  They say their total operating costs are about 0.1%/yr.

PHYS's overall expenses, per http://sprottphysicalbullion.com/sprott ... old-trust/ are 0.35%/yr management fee (collected monthly), plus a yearly administrative fee - for a total ER of 0.42% in 2012.

[Kbg]

Thanks for the post on gold storage costs.  This year I will be posting leverage per the "portfolio cash equivalent model" posted on page 29.  Thus for a 100K portfolio...

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

With real money I am doing the 2x version; however, I find the 1.5x version extremely interesting, probably safer than a normal PP, and I believe highly likely to outperform a regular PP over the long run. We shall see!

Purchase price was at the close 12/31/15 through the close on 1/31/15

2.5x = 4.45%/-2.93%DD

2x = 3.18%/-1.88%DD

1.5x = 1.92%/-.83%DD

1x = 1.63%/-.94%DD


And just for fun... 12/31/15 - today's close

SPXL down 18.96%

UGLD up 24.15%

TMF up 20.34%

This is what we hope for using this method...nice strong trends.

[Kbg]

A little out of cycle update...

YTD UGLD is up 40% and TMF is up 30% while SPXL is down 26%.  Things have been so crazy the last couple of months that I'm actually getting near to a rebalance point.

[dragoncar]

A little out of cycle update...

YTD UGLD is up 40% and TMF is up 30% while SPXL is down 26%.  Things have been so crazy the last couple of months that I'm actually getting near to a rebalance point.

I did my 1-year rebalance recently.  On current value to cost-basis I'm -5% UGLD, +11% TMF, and -31% on UPRO.  Overall down around 5% of real monies.

And I'm already starting to watch the rebalancing into UPRO if things keep on keeping on (UPTO at 20% of exposure)

[Kbg]

A little out of cycle update...

YTD UGLD is up 40% and TMF is up 30% while SPXL is down 26%.  Things have been so crazy the last couple of months that I'm actually getting near to a rebalance point.

I did my 1-year rebalance recently.  On current value to cost-basis I'm -5% UGLD, +11% TMF, and -31% on UPRO.  Overall down around 5% of real monies.

And I'm already starting to watch the rebalancing into UPRO if things keep on keeping on (UPTO at 20% of exposure)

I did an annual rebalance on the 31st...glad I did.

[frommi]

Now that the PP is running again, i am a  bit nervous about the Deutsche Bank index swaps in UPRO. Its possible that DB will go into bankruptcy this year, so are you sure that the swaps are safe?